Monday, October 16, 2017

Housing, Mobility, and Opportunity

My family has always been mobile. My mother moved here from the Philippines in the seventies with an associates degree from the lesser known MIT: Mapua Institute of Technology. My father took his mechanical engineering degree from Massachusetts to chase the jobs where they led him: South Africa, San Francisco (where he met my mother), Arizona (where I was born), Nevada, Montana, before finally settling our family in Pittsburgh, where the pay was pretty good and you could buy a big house in the suburbs with good schools on a single income.In a much smaller way, I've tried to do the same. After deciding small town Pennsylvania wasn't where I wanted to spend my college years, I followed a girl I met at a party out to San Diego to try for a fresh start. With no car and no job lined up, and technically being a college drop-out, I had faith that things would work out. They did, even if the relationship didn't. I ended up with an English degree earned in the evenings and, years later, I met Mrs. Done by Forty. Expensive as the city was, we had a good life in San Diego. But in 2009, when Mrs. Done by Forty got an offer to pursue a PhD in Arizona, we decided to move. We left the city and people we loved (and a steady government job, to boot) to roll the dice in a new city, again with no job in hand.
Still, this kind of story is less typical than it used to be. Making big, interstate moves in hopes of finding higher paying work is becoming less common, as this excellent Atlantic article by Alana Semuels notes. Americans aren't as mobile anymore:

"While 3.6 percent of the population moved to a different state between 1952 and 1953, that number had fallen to 2.7 percent between 1992 and 1993, and to 1.5 percent between 2015 and 2016. (The share of people who move at all, even within the same county, has fallen too, from 20 percent in 1947 to 11.2 percent today.)"

Americans have traditionally been willing to move for better work and their migrations have shaped our history: African Americans moving from the south to the midwest and eastern seaboard in the Great Migration, and the dust bowl migration to California in the 1930s that Steinbeck wrote about in The Grapes of Wrath. As a people, we've been willing to move our families if there were better opportunities elsewhere. If a worker could potentially double his income in New York or California, the risk of starting over in a new city might be justified. But this migration didn't necessarily hurt the communities that workers left, either:

"With less labor supply in the regions that they left, wages would then increase there, and fall in the regions they were moving to, as the supply of workers increased. As a result, for more than 100 years, the average incomes of different regions were getting closer and closer together, something economists call regional income convergence. Wages in poorer cities were growing 1.4 percent faster than wages in richer cities for much of the 20th century, according to Elisa Giannnone, a post-doctoral fellow at Princeton.

But over the past 30 years, that regional income convergence has slowed. Economists say that is happening because net migration—the tendency of large numbers of people to move to a specific place—is waning, meaning that the supply of workers isn’t increasing fast enough in the rich areas to bring wages down, and isn’t falling fast enough in the poor areas to bring wages up."

It seems that even though wages might be much higher in cities like San Francisco, even for a policeman or carpenter or any number of occupations that aren't related to the city's tech industry, too few people are moving to such high-paying cities to bring down wages, and too many people are staying in lower wage areas to raise pay there.So why are we staying put these days? A couple of professors cited in Samuel's article, Ganong and Shoag, believe the answer is housing. The cost of housing in high-wage cities has grown much faster, tilting the risk-reward analysis away from workers making the leap to these new cities.

"They find that though janitors still earn more in the tri-state area than in the Deep South, the move no longer presents an obvious opportunity because the costs of living in New York have gotten so high. Janitors in the New York area now spend on average 52 percent of their incomes on housing, the authors find, compared to lawyers, who spend just 21 percent of their incomes on rent."

With housing costs like that, we shouldn't be surprised if low wage workers in other parts of the nation realize the juice isn't worth the squeeze, and just stay in their current city. Their higher wage, higher wealth counterparts may end up making the move though, exacerbating wage inequality in the process.

Housing prices in these high-wage cities, the innovation hubs that Enrico Moretti describes in The New Geography of Jobs, are rising faster than their corresponding wages as a result of zoning and regulation. Regulation in these cities prevents new housing from being developed at a rate sufficient to meet the demand. Such laws are commonly driven by a kind of nimbyism of those who already own property. After owning a single family home, a resident seems to become a lot less open to high-density construction or multi-family housing in his community, especially since high demand for housing raises the value of his investment.As a result, the places most in need of new housing do not see sufficient new development, at a striking cost: "[a] separate paper by Moretti and Chang-Tai Hsieh of the University of Chicago found that lowering housing regulations in San Francisco, New York, and San Jose, to the level of regulation in the average U.S. city would increase GDP by 9.5 percent."

This is all pretty abstract though. We all know that New York and California are expensive. What's the takeaway for an individual who's just trying to do the best she can financially in the meantime?

After reading the article, it struck me how much home ownership has changed our desire, and our ability, to be mobile. For a while, Mrs. Done by Forty and I were planning to move to New York City for a year or two, while she was writing her dissertation. In the end, it wasn't the expensive rent or the complications with convincing my bosses that dissuaded us, but our house sure ended up being a tough problem to solve. Would we just rent it out and try to manage it from afar? Could we leave it unoccupied and ask the neighbors to keep an eye on it? Should we sell? And what about all our things?

Our home, at least as mobility was concerned, was an anchor. It was a pretty illiquid asset; one that required selling, renting, or some form of oversight if we wanted to live somewhere else for a year.

On top of that, it served as a place to fill with new things: way, way more things than we had when renting. Maybe that's a coincidence, but I feel like once owned, a home (especially one with a garage or a shed) has a propensity to serve as a physical representation of Parkinson's Law: stuff will fill all the available space provided.

In any case, for those still trying to establish themselves in their careers and earn an income that's commensurate with their skills, I'd highly recommend renting. When opportunity arises, you'll be more able to pursue it quickly. (And success often hinges on pursing opportunity quickly.)And lastly, we property owners should probably be more accepting of new housing development, even if that means changes to our existing neighborhoods, and even if that means our property won't increase in value quite as much. Instead of thinking of our homes as an investment or a store of wealth, we should think of it as a too-scarce and too-expensive commodity: one necessary for all of the people living here but, just as importantly, all the future residents who might want to move to our city, too. As always, thank you for reading.*Photo is from ground rule double at Flickr Creative Commons.

22 comments:

This is super interesting. I also think that renting is ideal if you're trying to stay mobile, but think that last paragraph is incredibly important, too. The renters market has ballooned since the recession, and affordable housing is so incredibly scarce. If you can't afford rent, that leap is a lot harder to make, especially with the rise of 1099 jobs that replace what used to be traditional W2 positions and accounting for the fact that employers don't need to shop outside of the urban areas they're located in as there's already a huge population there. If you're really looking to move for money, ideally you'd move to an up and coming city, but with so much urban growth since the past few generations, these are not as abundant as they once were.

*Also, my parents had a very similar story before we finally landed in the Burgh. I think the change in economy and potential for growth is what brought our families here. At least mine. We wouldn't have ended up here if it were still a steel town. Ironically enough, Pittsburgh may be one of those cities again as a tertiary city with a stable housing market and a tech boom.

"If you're really looking to move for money, ideally you'd move to an up and coming city, but with so much urban growth since the past few generations, these are not as abundant as they once were."

This is basically Moretti's argument in The New Geography of Jobs: people should move if at all possible to certain winner cities (San Fran, NY, Boston, San Diego) even if they're not in the innovation jobs that those cities are known for. The idea is that a single high tech worker in San Fran creates multiples of jobs in other fields (someone's got to teach that guy's kids, spread avocado on his toast, etc.) and those folks get much higher wages too.

Your point about rent now being so high in some cities is well taken: I think it's basically why people aren't taking the leap. Many workers realize that the higher wage won't cover the increase in rent. (Or as you noted, the rent in their current city is so high they can't easily save for the move.)

Pittsburgh is, as it always has been, a bit of anomaly. The city's in a job boom but housing isn't crazy expensive. I encourage anyone thinking of going there to seriously consider it.

Man, I was kinda hoping you got with the first girl you followed to San Diego!

I read this article last week, and I definitely fall into the category of "educated person" who has an easy time picking up and moving. I basically just followed the jobs after graduating school.

My mom, on the other hand, is like the people in the article. She has not thought to move from the town she landed in America. She does OK and makes more than minimum wage where she is. She also have a network of friends to help her with things, and that's invaluable. It's funny, actually. When I took her to see the Southwest she kept complaining how there were no Dunkin' Donuts there, and that is why where she is from is far superior to the Southwest.

In terms of NYC, I feel like the time has passed where there are affordable options for low-income people. Technically, NY is great for poor people because of the programs, but there is fewer turnover for affordable apartments, and the new ones they are building, aren't really affordable at all. Like, even on my salary, I would not pay that much. Sometimes it seems like if you didn't come to NYC a decade ago you're out of luck.

One small fear I have of owning is like you said, making it hard to actually be mobile. Even though I haven't lived anywhere besides NYC in the past 7 years, and won't move for another 4 years, buying a place here still seems like some kind of irreversible decision.

"Man, I was kinda hoping you got with the first girl you followed to San Diego!"

We dated for a few years but I am much, much better off with Mrs. Done by Forty.

And if it makes any difference, we do have a Dunkin Donuts just up the street from our old house. We love the coffee. :)

NYC is probably the best example of a place where well-meaning residents have embraced a system of city planning and regulation that's resulted in sky high housing costs for many. For many fields there (e.g. - finance), the juice is worth the squeeze because you really can earn a crazy high income there. But for a lot of other workers, they might be better off staying put.

The answer seems to be to build more housing. Hard to do when you've got nowhere to go but up. :)

Not sure I'm in agreement regarding renting being a good idea for younger people. I guess it depends on your location, goals and situation.

Prices in Denver have risen so much so quickly, that many renters simply haven't been able to keep up. I know people who have left town because they simply couldn't afford the rent. At the very least they've been forced into moving out to the edges of town and taking on enormous commutes, or taking on roommates etc.

And if you're renting, well, you can't just be content with a job you like - you're quite literally forced into a situation where you're constantly having to try to make more and more money just to stay where you are as the rents go up.

That's pretty much why I bought my house back in the mid-90s. Rents were nearly doubling every year or two, and my salary certainly wasn't. It was either buy a house and lock in my payments, or quit a job I loved and look for something that paid better.

Plus, in a hot market, selling a house is really not the huge deal that it may be in "normal" circumstances. Over the past year or 2 about half a dozen people on my block have cashed out and moved - all of the houses selling for over the asking price in less than 48 hours.

So I dunno... I guess when it comes to owning vs. renting, the answer, as far as I'm concerned, still remains: It depends.

I agree with the idea that if you're going to stay in a city long term, then owning certainly has a ton of advantages. Over time, you're pretty likely to see your real housing costs decrease (depending on how your municipality handles property tax increases).

But specific to the idea of moving for the sake of chasing higher wages, I like how easily you can just provide notice and rent a truck. Owning makes the timing of moving much less certain: often the people who most need to move to chase a better opportunity don't happen to live in a hot market.

It can be done, of course. I just mean to say that while you're still trying to earn what you're worth, a move to another city has historically been a pretty good option. People might want to wait to own until they feel like they earn enough, and/or are done moving.

Those are good points. I guess I just have a hard time wrapping my brain around the idea of relocating for the sake of a job. I realize I'm an odd duck in this sense, but I was never even willing to take a job that required me to get up early in the morning, so I just can't imagine being willing to do something as radical as relocate for the sake of work! I forget sometimes that I'm marching to a completely different drum than most folks.

I think the dynamic of regional income convergence described in the article kind of hinges on many people staying, and many people leaving:

"With less labor supply in the regions that they left, wages would then increase there, and fall in the regions they were moving to, as the supply of workers increased. As a result, for more than 100 years, the average incomes of different regions were getting closer and closer together, something economists call regional income convergence."

So there's really no right or wrong approach here. Staying put can be good, and moving can be good.

Either way, I think it's good to make the free movement of labor as frictionless as possible, and allowing new housing to be developed as demand dictates would help a lot. Ideally, housing wouldn't be a primary factor in when people are deciding what job to take.

I never would have guessed that mobility had decreased. I guess I'm in a different bubble of friends because most have moved to one of the coasts for jobs - mostly CA. I'm one of the few that has stayed put in Utah.

I wonder how much technology and the shift to knowledge work has to do with many of us staying put. Much of my network works virtually, myself included. My clients are all over and they don't care where I'm located, so why would I move for work? I can literally work with anyone in the world who has wifi, so the lower my housing costs, the bigger advantage I have on my rates, compared to competition located in higher COL areas.

Utah certainly isn't the cheapest place I could live. If I didn't have kids, I'd honestly pick up and move to Bali so that I could really take advantage of the margin. As work becomes more and more location independent, it will be curious to see the effect of potential migrations to low COL areas, although family/friend roots may just continue to emphasize a trend toward staying put.

Your point about WAH and location independence is an excellent one: I wish I'd thought to include that in the post. I think this, too, highlights the stratification of our labor market. Knowledge workers are both more mobile and are able to extend that mobility even further via technology and working at home. Live in low-COL Utah for a client in NYC (who might be happy paying NYC rates). Or go truly mobile and leverage geographic arbitrage.

But such location independence isn't as easy to achieve for a lot of fields. If you work with your hands, you often just need to be where the jobs are.

I don't mean to paint too bleak of a picture, but it's interesting to me that we well off, college educated workers seem to have yet another advantage. I'd like to see greater mobility all throughout our society: income mobility & physical mobility.

I'll add quickly to the conversation by simply adding a reference to this article from the NYT last week titled, "Why Big Cities Thrive, and Smaller Ones Are Being Left Behind".

It really resonated with me, as I've been noticing this trend first hand over the last decade (I travel a lot for business) and have articulated to friends that when my own son grows up, there are only about 5-10 cities he should move to. That is where the talent (and thus jobs) are aggregating and it varies a little by industry.

I too, grew up moving every 2-4 years because of my father's job, so my sister and I have always had a tendency to move without a second thought (although I acknowledge it is a lot harder now than in the 80's and 90's).

I might add that I believe one of the solutions to affordable housing is not being talked about enough, out of the box transportation thinking. For example, a high speed train from Philly to NYC would open up all of New Jersey as a burb. One from Monterey or Sacramento to San Francisco would do the same.

I mean real high speed rail at affordable prices (e.g., Asian style or Hyperloop thinking) not the hyperbolic high speed trains we talk about today ("they go 5mph faster than the old trains, so let's call them high speed")

That's a great article, Tin, and I noticed Moretti was quoted in it as well. He's an authoritative voice on geography and jobs right now, though I don't know I completely agree with the idea that everyone who can should just move to an innovation hub city.

I really like the idea of infrastructure in transportation, like high speed rail, broadening the idea of what counts as local real estate. In NYC, the eastern seaboard, and the Bay Area, I think it has a shot. Outside of that, I doubt our density currently would justify such an investment: luckily, these are the cities that really need affordable housing anyway.

I am considering doing a follow up post on another solution: tiny houses.

Yeah, I just ordered the Moretti book. Will be reading that next week. Oh God, please don't do "tiny houses"...I believe those are a fad/trap. MIL suites (or ADU's) are the better bet. In fact, I just build an ADU at my property in Seattle. I took the small ADU unit for myself for when I business travel and am renting out the main part of the property.

Tiny houses surely are trendy but I'd put them all in the same bucket with MIL suites/ADUs or, what they call them in our city, accessory structures. The rub here is that you need to have a 15,000 square foot lot to have a 2nd structure like that on the property, and hardly anyone has a lot that big. Ours is pretty sizable but we're not even at 13,000 feet.

This is exactly the sort of zoning/housing regulation that keeps cities from using all the available land in their borders, and drives housing costs up.

Ugh. There are a ton of development in Portland today. I don't know how all the new condos would affect the housing price. The new places are more expensive and smaller, but there will be a glut of units in a few years. Tough call for property owners. I'm trying to get new tenants for my condo and there is a building going up next door...

Yeah, property owners are the ones who would suffer if cities actually deregulated. If it makes you feel better, homeowners and their interests have been winning out on the local and national level re: policy for some time. Which shouldn't be too surprising, since the people on city councils, and government at just about every level, are overwhelmingly property owners themselves: renters just aren't represented that well.

And while I'm sure lots of development is happening in Portland, lots of people are moving there, too. If I had to wager, I'd say that rents would continue to rise there for some time.

Really enjoyed this post - a month out from moving my 'home's' worth (one bedroom apartment) into my parents because they have taken a year long position overseas. Can I begin to tell you the stress and annoyance of moving? Yes, all to save $400 per week rent; though bills I'll cover for their home with my brother will likely be higher than now, will bring me ahead.

It's not the first time in the five years since I bought a home and furnished it, that I've felt the anchor you speak of. Sure, I can store furniture, but... it's like burning money. For things with no great resale value (which is why you keep them) but cost a mint to collect when needed, even second hand. I realise having my own 'things' also comes with some less stress - unlike an AirBnB or a friend's home, I don't worry what's soiled the sofa, what that smell might be - it's largely all mine. Mine to ruin. Mine to stain. Mine to apologise to others about, but not to be skeezed out by. (Sorry that took a tangent!)

Saving $400 a week on rent is no small thing: that's real money, even when accounting for some utilities.

Still, moving is a real pain, as you know. I think it's easier when renting than owning, just because of all the hoops you have to jump through to sell a property: listing, appraisal, inspections, repairs, and then there's the costs paid to realtors. Ugh.

Still, moving while renting is no piece of cake, either. You just avoid the rigamaroll with selling.

Very nice post. A house is definitely an anchor. We just purchased a house and I do not want to go through the moving process all over again. Like others, I'm a little shocked mobility has decreased over the years. But the housing costs can be a deterrent. The company I work for offers two year stints in NYC and major California cities. The wage increases are nowhere close enough to offset the increase in rent, cost of living etc. So for me, it was a non-starter.

You make a fair point about development and how it can drive prices down. Here in Cleveland, they are building new apartments or converting old buildings to apartments left and right in the downtown area. Sure it will eventually drive prices down as the competition sets in. Then, downtown living will become that much more affordable and a new level of renters potentially can move into the area. Very, very interesting.

I suppose for just a two years stint, one might be more willing to take a bit of a bath on housing costs just to give it a go and see if something better materialized. But long term? Tough to eat the higher costs without a salary to match.

Cleveland is a city ripe for redevelopment and, hopefully, enough of it to tamp down the housing costs that might be associated.

Disclaimer: This blog is written for entertainment purposes only: not to give advice. I'm just some dude on the internet, and one without a whole lot of credentials. It's a good idea to consult with professional before making investment, tax, or financial decisions.